Why $1.2 billion gambling mecca Resorts World Catskills has fallen on hard times

The Resorts World Catskills in Monticello has lost money every quarter since it opened in February 2018.

Photographer: Ben Sklar/New York Times

MONTICELLO, N.Y. — It was once thought to be a sure thing, a $1.2 billion gambling mecca that carried long-held hopes of revitalizing the Catskills, and more recent expectations of driving Gov. Andrew M. Cuomo’s upstate development program.

But Resorts World Catskills, roughly 85 miles northwest of New York City, has lost money every quarter since it opened in February 2018, dragged into the red by a combination of underwhelming attendance and nine-figure loans.

Last month, the largest stockholder of Empire Resorts, the company that operates the casino, argued that it should go private because it no longer believed it had “any reasonable prospect for becoming financially self-sustaining in the future.”

The company’s most recent filing with the Securities and Exchange Commission showed a $36 million loss in the second quarter of 2019, after a $37 million loss in the first three months. The company warned that it may seek bankruptcy protection if it does not secure financing.

Things had gotten so bad that Empire Resorts successfully petitioned the New York state Gaming Commission to reduce the number of slot machines required on its gaming floors, a move that would artificially increase the casino’s win per unit — a key barometer for casinos.

But Resorts World Catskills is far from alone in feeling the pain: All four of the state’s newest casinos have underperformed expectations, swamped by competition in an already-saturated gaming market.

The same challenge has faced casinos across the country, as states attracted to the promise of tax revenues and jobs have engaged in a kind of brinkmanship that divides already-served markets into smaller and smaller pieces.

“In the early days, it was build it and they will come, and that worked for a long time,” said Alan Woinski, a gambling industry analyst and consultant. “That was great when you only had a casino in every other state. Now it’s like a war.”

By the time New York opened its first full-fledged casinos, the state already had five tribal casinos and more than a half-dozen so-called racinos, which offer slotslike video lottery terminals at racetracks.

“None of this is a shock,” said Harold L. Vogel, a longtime gambling industry analyst. “We know that there are so many states that have legalized different forms of gambling. And New York state, in particular, was late to the game.”

New York has also been slow to embrace sports wagering; although casinos are allowed to take sports wagers, the state has not authorized mobile betting — a method that has helped propel New Jersey past Nevada in sports betting handle.

Cuomo, a third-term Democrat, has repeatedly defended the gaming expansion as a no-cost-to-the-state way to provide much-needed jobs, both in construction and the facilities themselves.

Those promises have largely held true, with significant caveats: The construction jobs were temporary, and many casino jobs are low paying, with dealers making a statewide mean salary of about $35,000 a year, according to the State Labor Department.

“We did the casinos in upstate New York, not because it was the greatest industry in the world, but because upstate New York’s economy’s been suffering for decades,” Cuomo said in a radio interview last month. “The casinos have brought thousands and thousands of jobs to upstate New York and invested billions of dollars.”

State officials have talked about the millions poured into state and local tax coffers as a result of the expansion, in addition to $171 million in license fees paid by the four new casinos. The casinos pay a tax of anywhere from 37% to 45% on slots revenue, as well as 10% on revenue from table games like craps and roulette.

The state’s seven tribal casinos — including the Turning Stone casino east of Syracuse, run by the Oneida Nation — pay lower rates, and the owners of the new casinos have actively lobbied lawmakers to lower their own rates. That inequity has been particularly vexing for casinos in Western New York, where the Seneca tribe has been in a protracted legal dispute with the state and has refused to pay any revenue for more than two years.

Greg Carlin, the chief executive of Rush Street, which operates the Rivers Casino in Schenectady, New York, said its “revenue is below what we originally expected and our costs are higher, and we didn’t appreciate the impact that different slot rates would have on our business.”

He added that Rivers, which opened in early 2017, “has been a success from a community standpoint and a New York standpoint” — pouring millions into Schenectady and neighboring counties. “But it has not been a success from an ownership or an investment standpoint.”

Competition also continues to increase, both in terms of locations and options for gaming. In late June, a $2.6 billion casino opened in Boston, and last August, MGM opened a casino in Springfield, Massachusetts, just 60 miles from New York’s eastern border.

In response, the casinos have embarked on a variety of efforts to try to survive, including a little-noticed legislative deal to allow Resorts World to build a video-machine gaming hall in Orange County, a heavily populated New York City suburb. At the same time, Resorts World closed its racino at Monticello Raceway, where business had plummeted since the Catskills casino opened.

Casino officials are still hopeful that mobile sports wagering will be permitted in New York; some state lawmakers suggest that it will be a top priority in January, when the next legislative session starts.

“We are very optimistic,” said state Sen. Joseph P. Addabbo Jr., D-Queens, who chairs the Racing, Gaming and Wagering Committee.

And then there remains the potential grand prize: a casino in New York City.

Owners of racinos at Aqueduct Racetrack and Yonkers Raceway suggest that they could quickly transform their operations into full-fledged casinos; if a competing casino were allowed to open nearby, their business would presumably suffer.

Proponents of a city casino were encouraged in late June when the state Gaming Commission announced that it would pay for an independent study of the casino industry in the state, including the potential market for up to three additional casinos in the New York City area. Such an expansion was not scheduled until at least 2023, but state lawmakers seem eager to accelerate the timetable. The study is due by the end of the year.

Colin Mansfield, a gaming analyst with Fitch Ratings, said many analysts doubted whether the upstate casinos would ever be successful, in part because of where they were built — none near a major, million-plus population center — and the demographics of many gamblers in those regions.

“Building new supply in an already competitive market makes it pretty difficult to generate any sort of meaningful performance,” he said. “You look at the size of the properties, and even the smaller ones are struggling.”

Earlier this month, Kien Huat Realty, which owns most of Empire Resorts, announced that it would partner with Genting Malaysia, which owns the Aqueduct racino, and seek to buy out existing stockholders at $9.74 per share; the stock is currently trading at around $8.20.

Genting officials said in a filing Thursday that their offer was “the best alternative available to Empire’s stockholders,” and would allow the Catskills casino to benefit from a combined marketing approach and allow the company “to compete more effectively in northeastern U.S. region’s current competitive gaming landscape.”

Woinski, who has studied the gaming industry since the early 1990s, said casinos in the United States tended to perform better when they were on the peripheries of cities.

In those spots, he said, they tended to be accessible to a huge number of would-be gamblers who would not have the same entertainment options as people in city centers.

“When you’re in a big city, there are so many other things to do that casinos are an afterthought,” he said.

Monticello does not have that problem; its downtown shows little evidence of an economic benefit, with empty storefronts pocking its main drag. Inside the casino on a recent Friday night, many of the baccarat tables were empty, while poker, craps and blackjack all were doing steady business. Some visitors, however, had simply come to enjoy karaoke at one of the facility’s bars and not really gamble.

One of those was Ronnie Dimmie, a school bus driver from Washingtonville, New York, about 40 miles east, who performed a version of Gloria Gaynor’s “I Will Survive.” She said she had come to hang out with friends, but would not risk more than $20 gambling.

“We’re having a great time,” she said. “But gambling, staying up all night? Those days are over.”